In a letter to industry associations this week, the Property Investors Council of Australia (PICA) said a growing number of buyers’ agents, accountants and mortgage brokers were straying into financial advice territory by recommending structures such as trusts and self-managed super funds (SMSF) as vehicles for rapid property accumulation.
“What’s happening here is some buyers’ agents, accountants and mortgage brokers are proactively giving financial product advice to encourage unsophisticated investors to set up these types of investment vehicles with the promise that it’s the only way they will be able to build a property portfolio fast, get rich and retire sooner,” PICA chair Ben Kingsley said in his nine-page letter.
He argued these practices not only breach the Corporations Act but also expose naive investors to unnecessary risks while undermining licensed advisers who are bound by best interests duties.
ASIC’s regulatory guides make it clear that advice around gearing, structuring and investing through SMSFs can amount to financial product advice – an area strictly off-limits to unlicensed operators.
“The emerging problem we are flagging here is that there is a growing number of buyers’ agents, property investment advisors, mortgage brokers and accountants, all with potential direct self-interest and conflicted remuneration, who are now proactively promoting these ‘fast track and get rich quick’ schemes,” Kingsley said.
The letter flags the “hyperscaling” of social media promotions that promise outsized returns, spruik tax incentives as a reason to invest, and appeal to vulnerable investors with “quit your job style” messaging.
PICA warned that such tactics echo past spruiking scandals and could invite a regulatory crackdown.
“Offering up ‘get rich quick’ claims naturally lead to steady inflows of enquiries from enthusiastic, yet amateur and naïve investors, who fall prey to their aggressive claims,” Kingsley said.
“As a peak association representing your professional members and in the interest of upholding the professionalism and reputation of your industry, we ask that you inform your members to steer clear of such marketing activities, adopt a more balanced approach, and avoid any future risk of a ‘please explain’ by the regulators,” he added.
The group cautioned that the rise of speculative activity risks shifting residential property from a long-term rental supply base into a “speculative traded commodity”, with negative consequences for both housing affordability and financial stability.
“If the trend we are seeing becomes ‘mainstream’ from more operators, it will be impossible for governments or regulators to ignore the eventual projected impacts and outcomes, and they will act. And when they do, we run the very real risk that they will over-regulate and overtax, causing even more pain for all of us involved,” Kingsley said.
He called on professional associations, including those in financial advice, to remind members of their legal obligations and the importance of disclosure.
“Your members, who are operating or facilitating investments in residential property, need to understand and explain these risks, including the current elevated risk associated with ‘animal spirits’ behaviours, which we are starting to see the emergence of in this space,” he said
Kingsley added that PICA is open to working with financial advice bodies on joint education initiatives and compliance resources but warned the industry: “This irrational exuberance needs to be reined in as it will only end badly.”
Probe the source of client motivations
Speaking to ifa, Kingsley had a further message for financial advisers, urging them to probe the source of client motivations, warning that many are being swayed by unlicensed operators.
“If you get rung randomly by somebody who is asking for advice on setting up an SMSF or setting up a trust to invest in property, the first thing that I would be saying to them is, ‘What’s inspired you to do this’ or ‘Who has inspired you to do this’,” he said.
“If that is being inspired by the property investment adviser group that they’re working with then that should be alarm bells for that financial planner.”
Kingsley, who also runs a licensed financial advice firm, said the trend was already evident in his own practice, with “11 random inquiries” last month from people wanting to set up trusts to invest in property.
“We obviously politely declined every one of them.”
Interesting you say this a very recent experience.
I have been working as a financial adviser with a young couple in their early 30’s. Their objective was to build a deposit for an investment property which was getting very close.
It was my professional opinion that setting up an SMSF and using that to buy the property was not a good idea given their modest balances, resulting lack of diversification and intention to start a family. (Where SG would cease for quite a while based on the clients testimony).
Nonetheless, these good people were recommended a mortgage broker by a real estate agent they’d met at an open house. They consulted the mortgage broker and they said that they should start up an SMSF and use that to purchase the property the agent was selling.
They said that this conflicted against their financial adviser’s recommendation. The mortgage broker said that they shouldn’t listen to me the adviser because of ‘ulterior motives’ and ‘commissions’.
The clients came to me and enquired as to whether the mortgage broker’s position had merit. So I unpacked this and absolutely hammered the mortgage broker. The clients accepted my advice and we moved on.
As an exercise, the clients went back to the agent the next day and asked whether they should listen to the mortgage broker or the agent. The agent said it would be best to follow the recommendations of the mortgage broker. The clients called me to tell me this.
We had a laugh about it.
What an absolute joke.
I’m considering my options as what to do next.
Dear ASIC, have you ever busted 1 single accountant for illegal AFSL Advice with no AFSL ?
I’ve seen a lot more real estate agents and mortgage brokers providing financial advice.
How many times do you have to do a ‘buy-hold-revalue-refinance-repeat’ for this to be a financial advice strategy?
Meanwhile I read a small financial advice practice was fined $31k for small mistake on an adviser registration which resulted in no consumer detriment.
We really live in a bad country when it comes to this kinda stuff, we really do.
I think a lot of people that come on websites like this are sick to death of the appalling double standards which come out of Canberra.
When a licensed Real Estate agent markets a property to be
“ Ideal for your SMSF “ tell me exactly what this is….
This is general advice.
And they are not licensed to provide either general or individual financial advice…full stop.
When an unlicensed property spruiker does it is it even worse.
In either case, that type of claim is illegal and conflicted as the provider of that advice will receive a financial benefit if the property is sold.
Maybe ASIC could actually do their job and make an example of one of these operators to set the tone on the issue. It wouldn’t be hard to shadow shop one of these spruikers and take strong action against them, but we all know ASIC is too lazy to do anything about it. In 5 to 10 years time, after significant consumer harm, ASIC will announce they are taking action, and will ultimately blame advisers for everything, even after property industry bodies telling them about unlicensed operators clearly breaking the law.
Any consumer can go online & set up a SMSF through online operators. The big issue is how they invest their money, not just the structure. The problem with these arrangements is the narrow focus of investment – ie ONLY ETFs etc.
This has to be a joke. Are there dozens of buyers’ agents, property investment advisors, mortgage brokers and accountants giving unlicensed and illegal financial advice to SMSF’s and property investors? Of course there.
They also forgot builders and general property agents.
This however been the case for over a decade and ASIC have shown they have no interest in taking action in this area — they will however target a licensed adviser who recommends someone establish and SMSF and purchase a property. There is no benefit to an adviser in making a complaint to ASIC about this, it is simply a waste of the advisers time and effort.